Snyder signs new emergency manager law

Gov. Rick Snyder signed a new emergency manager law on Thursday, less than two months after voters repealed its predecessor.

Public Act 436 of 2012 will, when it takes effect March 27, 2013, leave distressed communities and school districts with four options: a consent agreement with the state, the appointment of an emergency manager, mediation or a Chapter 9 bankruptcy filing.

The Local Financial Stability and Choice Act will also once again give emergency managers the ability to break or modify union contracts and override local officials, similar to Public Act 4 of 2011, which was repealed by voters on Nov. 6.

“This legislation demonstrates that we clearly heard, recognized and respected the will of the voters,” Snyder said in a statement. “It builds in local control and options, while also ensuring the tools to protect communities’ and school districts’ residents, students and taxpayers.”

Pontiac City District 5 Councilman Donald Watkins said: “The voters of the state repealed an emergency manager law, and they (lawmakers) responded with an emergency manager law, and that’s what it comes down to.”

The new emergency manager law was one of 282 bills passed by the lame-duck Michigan Legislature between the November election and the close of this year’s legislative session.

Michigan’s existing emergency financial managers will continue working under the new law, and their title will change to “emergency manager.” Since Aug. 8, they’ve worked under Public Act 72 of 1990. On that day, Public Act 4 was suspended when Proposal 1 was placed on the ballot at the direction of the Michigan Supreme Court.

“A lot of the powers and the tools available to an emergency manager are similar to (Public Act 4),” Michigan Department of Treasury spokesman Caleb Buhs said of the new law.

“There’s major changes on the front end. When an emergency is declared, Public Act 436 gives locals a choice as to what path they want to take, essentially.”

Local officials will be able to remove an emergency manager with a two-thirds vote of their governing body 18 months after the manager’s appointment, Buhs said. If a city has a strong mayor, the law requires that mayor’s approval to remove an emergency manager.

After an emergency manager’s removal by a local vote, the municipality or school district would then have to negotiate a consent agreement with the state or enter mediation.

Municipalities and school districts would also enter mediation before a bankruptcy filing is approved, Buhs said.

“Anyone who has a stake in seeing the city’s financial situation improved,” including labor unions and creditors, would participate in mediation, Buhs said, in an attempt to reach an agreement without entering bankruptcy.

“The way the local governing body would choose bankruptcy right off the bat would be if they were running out of cash within 60 days,” he said.

“If that’s not the case, you would go to mediation first.”

The state looks at a municipality’s or school district’s overall budget when considering whether it can exit from receivership, Buhs said, and considers factors such as whether any structural deficit is corrected, whether revenues match expenditures from year-to-year, and whether local officials are “at a point where they’re able to take over control and maintain progress made by the emergency manager,” he said.

“There’s not one way to get out of an emergency,” Buhs said. “There’s a number of ways they can come out.”

Public Act 436 provides for a transition team after the end of a financial emergency, putting in place a “board with some oversight over the city’s finances,” Buhs said.

Municipal bankruptcies are relatively rare nationwide, although three California cities have filed for Chapter 9 protection this year, most recently San Bernardino.

Pontiac’s emergency financial manager said bankruptcy is an option, but as a last resort.

“I’ve always been of the opinion that if you can fix Pontiac, then you can fix anyplace. I think we can fix Pontiac without going into bankruptcy. I don’t see ever using it myself,” Lou Schimmel said.

Before coming to Pontiac, Schimmel served as an emergency financial manager in Ecorse and Hamtramck under the older Public Act 72.

“It took forever,” he said. “We never really got concessions with labor unions like we really needed in order to really fix it as well as we would have liked to.”

Pontiac’s finances have been under state control since 2009. Schimmel, the city’s third state-appointed manager, said he could be gone within months.

“I’d rather answer the question in terms of finishing the job, rather than setting a hard date,” he said, citing the demolition of the Phoenix Center and resolution of the city’s retiree health care obligations as his last two major projects.

The new emergency manager law will assist Schimmel in solving the $6 million annual structural deficit caused by retiree health care obligations, as well as in selling property and crafting ordinances, he said.

“I’ve been around a while,” Schimmel said with a laugh. “I’ve been around long enough to have operated under every (emergency manager) law there was, plus as a city (receiver) before there was an emergency manager act,” he said.

“I was always complaining about Public Act 72, that it didn’t have what Public Act 4 had — authority to deal with labor contracts and property sales.”

Another way the new law will affect Pontiac: The state will pay the salaries of emergency managers.

“It’s fool’s gold,” said Councilman Watkins. “It wasn’t because they wanted to be nice and start paying (Schimmel’s) salary. It was because, by making a (spending) allocation, they made it referendum-proof,” he said, referring to the fact that attaching appropriations to a piece of state legislation immunizes it to a voter referendum.

The Department of Treasury’s spokesman said the change was in response to the concerns of communities in financial trouble.

“When drafting this new legislation, we tried to take into account all the concerns local citizens and officials have had through the years,” Buhs said.

“One we have heard throughout is that we essentially put a manager in and asked (cities) to pay for them. We tried to address that concern by having the state take care of those salaries.”

District 4 City Councilman Randy Carter said the state receivership process isn’t transparent enough.

“I believe they purposely did us wrong by keeping us out of the loop,” he said. “If we’re losing all our assets and are still stuck with retiree health care, we didn’t gain anything.”

The cities of Allen Park, Benton Harbor, Ecorse, Flint and Pontiac have emergency financial managers, as well as the school districts of Detroit, Highland Park and Muskegon Heights. The City of Detroit is in a consent agreement with the state and is being reviewed for the possible appointment of an emergency financial manager.

Contact Dustin Blitchok at 248-745-4685 or dustin.blitchok@oakpress.com. Follow him on Twitter @SincerelyDustin.